Compliance Pitfalls - Avoid Lawsuits, Fines, and Civil Penalties
By Jacob M. Monty
Too often, employees find themselves in the same predicament. They are cheated out of wages they earn. Wage theft is not some rare occurrence; it is incredibly common and more widespread than you may think. Employers that fail to comply with wage and hour laws expose themselves to the growing trend of class-action lawsuits, which under most circumstances, lead to expensive settlements with employees.
AVOID THE WAGE AND HOUR PITFALLS
News sources constantly publish stories with eye-catching headlines about employers having to pay out multi-million dollar settlements to employees for engaging in unlawful pay practices. But what are the chances of this ever happening to a car wash business?
Last year, California car wash operator Vahid David Delrahim was ordered to pay $4.2 million in back wages and civil penalties for ordering his employees to work off the clock. When business was slow, Delrahim would direct his employees to clock out and stick around afterwards on the jobsite. These violations resulted in a substantial amount of unpaid time and lost wages, which in many cases amounted to several hours of pay each day.
In many respects, the Delrahim lawsuit set itself apart from others, especially since it invited a fight over legal ethics. Delrahim and his legal team were repeatedly sanctioned by the court throughout the litigation for withholding documents and for using coercive tactics towards employee witnesses. Delrahim went as far as to destroy evidence. Apart from having to pay a $400,000 fine in civil penalties, $1.9 million in back wages, and another $1.9 million in damages to his employees, the court ordered a court-appointed independent monitor to oversee Delrahim and his car washes’ employment practices for one year. Delrahim and his car washes were also required to issue notices to their employees and managers regarding employees’ rights under the Fair Labor Standards Act (FLSA).
Just when you think that car washes weren’t going to make the headlines anymore that year, it was revealed that two other California car washes and their supervisor entered into a wage theft lawsuit settlement in late November 2018. Silver Lake Car Wash and Catalina Car Wash, along with their primary supervisor Yoosef Aminpour, agreed to pay $1,084,972 in restitution to affected employees, along with $519,027 in civil penalties and $35,996 in litigation costs to the Los Angeles City Attorney’s Office.
Employees of Silver Lake Car Wash and Catalina Car Wash alleged that their employer was depriving them of minimum wages, overtime, and rest breaks. It was charged that both car washes paid their workers a daily rate as low as $45 dollars per day for 10 hours or more of work. This came out to roughly $4.50 per hour. On top of that, these employees were being cheated out of overtime pay. The car washes are now required to maintain compliance with all wage and hour laws, adopt accurate time keeping procedures for their employees, and provide a regular bi-weekly pay schedule with itemized statements on every check.
These recent cases send a powerful message to car wash owners and supervisors: Even if you’re tempted to save a dollar or two by skimming time of your employees’ time records, don’t do it because these unlawful pay practices will land you in serious trouble with the law. Engaging in illegal wage practices will result in having to pay large settlements, liquidated damages, and hefty fines in civil penalties.
The key in avoiding the wage and hour pitfalls is to be vigilant and proactive. It is a best practice to constantly audit and enforce the company’s policies regarding wage and hour practices and issue any disciplinary action to correct behavior.
PROTECT AGAINST ROGUE MANAGERS
It comes as no surprise that businesses face tough financial decisions all the time. To save labor costs, managers may sometimes be tempted to shave time off from their employees’ timesheets or pay employees as little as $45 for a 10-hour work day. Managers can also be very mischievous and ask their employees to work off the clock. These bad apples have come to be known as rogue managers, and employers should hold them accountable for engaging in unlawful employment practices. Rogue managers are a threat to your car wash business and if left unchecked, their malfeasance can result in huge settlements, serious fines, and reputational damage for your car wash business.
Identifying a Manager Gone Rogue
How do you determine if your manager has gone rogue? What will happen if you continue to employ a rogue manager? What can you do to prevent a manager from going rogue?
The first step in solving any problem is knowing and acknowledging that there is one. As a practical matter, you should always audit and enforce company policies regarding wage and hour practice. By conducting routine internal and external audits of pay practices and records, you will be able to detect improper behavior. For example, constant edits made by managers to employees’ timesheets will raise a red flag. There may be a legitimate reason behind the manager’s edits to the time records, but as an employer, you want to be proactive and audit the records to ensure that the manager wasn’t engaging in illegal wage practices. If the manager has a history of engaging in rogue-like conduct, the best practice is to let them go. The last thing you want is for a rogue manager to teach others how to be just like them.
Creating a culture of compliance with wage and hour polices, law, and procedures is vital for fostering a healthy business. Managers and supervisors have a duty to lead by example and to proselytize the company’s values and goals. Rogue managers that take part in illegal wage practices are sometimes pressed to run a successful business while reducing costs but maintaining compliance with the law outweighs all other considerations. Indeed, having effective and constant communication with your managers on the business’s policies and ethics is key to reducing these issues from arising.
INCREASED MINIMUM WAGE: UNINTENDED CONSEQUENCES
In recent years, a movement has swept the nation aimed at increasing the minimum wage throughout many states, cities, and counties. The federal minimum wage has not budged since 2009, when it was set at $7.25 per hour. Then, in 2012, the “Fight for 15” movement, with roots in New York City, began to advocate for the minimum wage to be increased to $15 per hour. The movement has scored successes through the years. Many states have approved an increase in their minimum wage, some reaching an increase to $15 an hour. Several cities have followed the trend.
The increase in minimum wage has affected the complex car wash industry. Through its unintended consequences, the wage hike has begun to eliminate jobs for car wash employees in many places. Some car wash owners have gone automated and replaced men with machines to save labor costs. Only time will tell how things turn out for car wash businesses and their employees in this technological age.
Last year, Car Wash Headquarters, which was doing business as Mister Car Wash and Mister Hotshine settled a race discrimination lawsuit for $225,000. The lawsuit was filed by the U.S. Equal Employment Opportunity Commission (EEOC). It was alleged that the car wash business was discriminating against its African-American employees when it refused to promote them to management positions at its Birmingham, AL area locations. According to the EEOC, less qualified white employees, some with no prior work experience were being promoted. The EEOC found that the African-American employees that were turned down for promotions were responsible for training the same inexperienced white employees who were later promoted to management.
Employers are prohibited from making business decisions, such as terminating, demoting, or promoting employees based solely on gender, age, race, national origin, religious affiliation, or disability. When an employee claims promotion discrimination, an employer’s objective, truthful, and specific performance evaluations serve as some defense to the allegations. This is why it is important for employers to be transparent and to provide employees with objective evaluations. Sometimes employers may fall into the trap of playing Mr. Nice Guy. The evaluation will go something like: “James, thanks for meeting with me. You’re doing a good job, keep up the good work.” It may be difficult to give constructive criticism and specific feedback to employees but doing so can save the employer from facing discrimination and retaliation claims.
If evaluations are not transparent and truthful, it makes it easier for any employee to use it as evidence that they have been discriminated against when they were denied that raise or promotion. Remember the key is to be objective and transparent because a well-crafted evaluation will reflect the non-discriminatory reasons for not offering the employee the raise or promotion.
WORKPLACE RAIDS AND ENFORCEMENT
The Trump Administration has enacted many changes through its massive immigration enforcement regime these past few years. As a consequence, employers are not being spared from the surge in workplace raids and Form I-9 audits and investigations conducted by Immigration and Customs Enforcement (ICE). While 2018 witnessed record-breaking numbers in ICE investigations and audits, 2019 won’t be any different.
To prepare for the interactions with ICE, employers should take precautionary measures to ensure that their businesses comply with the I-9 requirements. Employers should be proactive. To avoid or mitigate consequences, it is a good practice for employers to periodically conduct mock I-9 audits and make any necessary corrections to the I-9s.
Jacob M. Monty is the managing partner of the Houston-based law firm, Monty & Ramirez LLP. Monty is board certified in labor and employment law by the Texas Board of Legal Specialization. He regularly advises employers on a wide array of labor and employment issues. Monty & Ramirez LLP is an employment, labor, and business immigration law firm. Please visit www.montyramirezlaw.com for more information.